Tracking Performance: When Less Is More

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Tracking Performance When Less Is More

• Kathy A. Paulson Gjerde
• College of Business Administration
• Butler University
• Susan B. Hughes
• School of Business Administration
• The University of Vermont
• June 17, 2007

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Different Firms use Different Terms to Evaluate
Past Performance

• Dashboard indicators
• Key performance indicators
• Key success factors
• Balanced scorecard metrics
• No matter the term, the objective is to help the
  firm achieve its goal

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How many measures do you track?

• Less than 5?
• Less than 10?
• Less than 15?
• Less than 20?
• More than 20?

4
What measures are important in assessing your
performance?

• Traditional performance measurement systems often
  emphasize use of multitude of metrics. For
  example,
• Cost-effective purchasing AND
• Employing good people AND
• Producing quality products AND
• Capturing market share.

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• Tracking too many metrics can lead
• to confusion, lack of focus,
• and, ultimately, failure to achieve the goal.

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• Which metrics are critical to achieving your
  firms strategic objectives that lead to
  increased profitability and return to
  shareholders?

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Potential Solution

• Balanced scorecard is one commonly used
  performance measurement framework.
• Designed as way to focus managements attention
  on what is important.
• Typically generates 20-25 measures. Is this still
  too many? Lets take a look.

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Balanced Scorecard Example
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Balanced Scorecard Example
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Which Metric Should You Choose?
Financial
X
If the metric is
Customer

X
Employee Turnover Rate
Internal Business Processes

X
Learning and Growth
Measure of operating efficiency
Employee training and advancement
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Financial
If the key performance measure is
Double sales
Customer
Brands that are marketplace leaders
Leads to strategic goal
New Product Development
Internal Business Processes
of new products under development
Learning and Growth
Awareness of core values
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The Home Depot Experience

• Slow-down in rate of growth in 2000
• Autonomous store managers who ignored directives
  from headquarters
• Shortage of experienced managers
• Poor inventory turns
• Low margins
• Weak cash flow
• Increasing external competitive threat from other
  home improvement retailers

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The Home Depot Experience

• Cultural transformation
• New metrics created
• New programs were designed to win managers
  buy-in
• Processes encouraging accountability put into
  place
• Restructuring plans implemented quickly and
  decisively to reinforce cultural changes
• Result
• Earnings per share doubled

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What Went Wrong?
No Connect to Strategy
Financial
Customer Customer service began to slip.
Sales and market share began to slip
Measures focused on aspects of store
productivity
Internal Business Processes
Learning and Growth
15
The Starbucks Experience

• Ranked first in customer loyalty in
  coffee-and-donuts category for past 5 years.
• Starbucks lost sight of its brand
• Used automatic espresso machines to increase
  efficiency
• Used bagged rather than in-store roasted coffee
• Adopted cookie cutter approach to store design

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What Went Wrong?
Financial
Customer Speed and efficiency not what customers
value
Dunkin Donuts 1 in customer loyalty
Automation and Standardization
Internal Business Processes Improved efficiency
and speed of delivery
Learning and Growth
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What is the lesson?

• Over time, a disconnect may emerge between the
  strategic objectives of the organization and the
  results captured in the measurement system.

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Managerial Implications of Excessive Indicators

• How many reports do you ignore?
• How many times are you asked, Are we meeting our
  objectives?
• How often do you hear, Im not sure whats most
  important?

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Too Many Key Measures are BAD

• Burney and Widener (Behavioral Research in
  Accounting, 2007) surveyed gt700 IMA members about
  their strategic performance measurement systems
• Analyzed impact of type and number of measures
• Number ranged from 1 to more than 75
• Measured impact of complexity ( of measures)
• Low 10 measures high 28 measures
• Low complexity is related to reduced role
  conflict

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The Steak n Shake Experience

• Used the results of internal and external
  research to determine the THREE key metrics that
  drive individual restaurant performance
• Associate turnover
• Drive-thru window times
• Dine-in satisfaction

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• Why are these key performance indicators?
• Focus of operating improvements and training
• Lead to improved customer experience and customer
  satisfaction
• Ultimately lead to increases in revenue and
  decreases in operating cost
• Impact learning and growth, processes, customers,
  and financial performance!

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Even managing three metrics takes practice!

• Steak n Shake is not alone.
• Three metrics may be used in other industries,
  including hospitality and construction

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Now Its Your Turn

• Goal is to manage RGP Financial Services and
  reverse the vicious cycle that is driving down
  performance.

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RGP Decision Levers the key indicators

• Hiring policy
• Layoff policy
• Starting salary
• Rate of salary increase
• Investment in training
• Investment in infrastructure
• Advertising expenditure

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Appropriate investment in the key indicators
leads to

• Customer satisfaction
• Employee satisfaction
• Cash Index

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Sample Game Control Panel
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Take RGP for a spin

• Remember to focus on the key metrics!
• Can you make the right decisions to achieve
  success?
• How quick was the learning experience?
• Would your firms managers be able to chart a
  clear course of action using your firms metrics?
• Could reducing the number of metrics improve
  performance?